Why Savvy Students Use Tuition Payment Plans to Pay for College

Forty-four percent of students stress over balancing college costs with other expenses, according to a report by Sallie Mae — 60 percent of parents face the same challenge.

One way to make college payments simpler comes in the form of a tuition payment plan. This option is offered by many schools and allows you to pay tuition in installments, rather than in one lump sum.

A tuition payment plan could help you and your family better balance the cost of college. If that’s not enough, consider this sweet benefit: You could end up with less student debt. Here’s how these payment plans work.

Make monthly payments on a tuition payment plan

If your college offers a tuition payment plan, you don’t need to cover the cost of tuition in one fell swoop. Instead of paying everything at the start of the year or semester, you can spread your tuition payments out over time.

“A tuition payment plan breaks down the college bill into monthly bite-sized pieces [and] spreads the payments over nine or 12 months,” said Deborah Fox, Founder of Fox College Funding in San Diego. “Instead of parents or students having to come up with a large fee for each quarter or semester, they can sign up for [this] plan.”

Schools define the rules of the plan, but they typically use an outside company, such as Higher One or FACTS, to manage payments. Often you can choose the amount you wish to finance on a tuition payment plan. Usually, it’s whatever gap you have after financial aid.

“The amount that can be paid by a tuition payment plan will be the amount leftover after any grants, scholarships, or loans are subtracted from the total college cost,” said Fox.

Let’s say you owe $5,000 for tuition after all your financial aid has been applied. You decide to spread the cost out over 10 months, resulting in a payment of $500 per month. That’s still a hefty bill, but could be a lot more manageable than putting down $5,000 all at once, depending on your budget.

Not only do tuition payment plans let you pay your tuition costs over time, but they usually charge minimal fees for doing so — unlike student loans, which can come with an origination fee plus interest charges.

A tuition payment plan could mean less student debt

Without a tuition payment plan, you might have to take out a loan to cover the cost of college. But if you can spread your school payments out over time, you might not need this advance. As a result, you could save a lot of money on student loan interest.

“Very few universities charge interest, which adds up to a substantial amount of savings as parent loans carry high interest rates,” said Elisia Howard, owner and founder of college consulting company College Insight.

“I usually recommend [families] pay what they can using a tuition payment plan and take out the rest in loans, which can be paid over the course of years,” added Howard.

Carol Suter, director of student financial services at Southern New Hampshire University, echoed Howard’s advice to be strategic about paying for college. “If funding is seen as a strategy, where a plan using multiple resources is utilized, it could be possible to save money over the long term,” she said.

Let’s consider our previous example: You owe $5,000 in tuition. After looking at your budget, you can only afford to pay $250 each month toward tuition. You pay $2,500 using a 10-month tuition payment plan and take out a $2,500 loan to cover the rest.

When it comes to paying for college, take a look at all your payment options. Then, consider using a few different approaches to minimize the amount you take out in loans.

The downsides to tuition payment plans

Though tuition payment plans can offer an affordable way to pay for school, they also come with a few possible drawbacks.

Some payment management companies charge a fee to enroll in the plan; others charge a fee if you miss a payment. FACTS charges $30 if it can’t collect payment due to insufficient funds. Your college could charge you an additional fee, too.

Tuition payment plans also have a limited scope — they usually don’t cover costs beyond tuition. You’ll still be responsible for the costs of books, school supplies, and personal expenses. Depending on the school, even housing and food costs might not be eligible for a payment plan.

According to College Board, the average student at a four-year public college pays $1,298 each year for books and supplies. You’ll need to save up to cover these essential costs of attending college. If you can’t pay these extra costs out of pocket or with scholarship money, you might need to cover them with student loans.

Overall, there aren’t a ton of downsides to tuition payment plans. But before signing up for one, learn about its potential costs and limitations.

Speak with the financial aid office about your options

Each individual college has its own policy for tuition payment plans. If you’re interested, ask your school’s financial aid office about your options.

“If the student’s choice of school is partially dependent on what they can afford, they can make a more thoughtful choice about what is really important to them when choosing a school,” said Suter.

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